How to Create a Pricing Strategy for Services
As a boss who works with clients, one of the biggest challenges is figuring out how to create a pricing strategy for services.
When I was first starting out, I had no pricing strategy. I chose a number that seemed like a fair price, and then I charged that. I continued to charge that same rate for 8 years in a row.
Why? I didn’t get that I needed a strategy — and I know I’m not alone. Pricing is one of the most complex parts of running a business, and there’s so much wrapped up in it.
If you’re nodding along with me, I want you to know this is in no way your fault. Everywhere you turn, there’s cliched advice on pricing — people telling you to charge more, charge less, and it goes on and on.
Then you layer in the mindset involved in valuing your services and charging fairly for your time, skills, and efforts, and well, it’s easy to get turned inside out.
What’s a services-based business owner to do?
It starts with understanding the undeniable truth of pricing strategy for your business. You price too low, and you send the wrong message and end up resentful. If you price too high, you may end up struggling to book clients and get paid.
The goal with your pricing is to be able to bridge the gap and find the sweet spot between too low and too high.
Let’s dive a bit deeper into the issues on either side of this gap.
WHAT HAPPENS WHEN YOU’RE PRICED TOO LOW
When you’re first starting out, it’s easy to fall into the trap of pricing things too low. And if your confidence is shaky — all the more reason.
I’m a big fan of pricing things so you’re able to get feedback and nail down the model of what you’re doing BUT still being paid fairly. That allows you to get feedback and refine your processes while gaining more and more experience.
What you shouldn’t do is offer bargain pricing as it causes a number of issues. First of all, you’re more likely to be resentful about the work you’re doing as you’re not being fairly compensated.
Then there’s the fact that your pricing tells a story. If you’re constantly pricing yourself at the low end of the market, you’re sending a message that you’re not all that awesome at what you do.
Your low price doesn’t convey confidence that you can deliver results, and perfect-for-you clients may very well be turned off by it. (This is a red flag for me when I’m hiring contractors as I worry they won’t be confident enough to step up and deliver what we need.)
On the other hand, low, low prices often attract the wrong type of clients as they are selecting you not for what you can do for them but for the price. In my experience, people who are price shopping for services tend to be nightmare clients as their expectations are misaligned or they simply don’t respect you.
YOUR PRICES ARE WAY TOO HIGH
You’ve probably heard the whole “charge what you’re worth” pricing advice, and quite frankly, it’s crappy advice. It’s often used as a way to justify prices that are inflated or completely bananas.
The truth is, it’s impossible to charge what you’re worth as who decides what you’re worth? How do you quantify that?
Exactly. It’s nearly impossible to pull off.
So, how do you know if your pricing is too high?
First of all, if you consistently can’t book clients at that rate or you have a lot of conversations with would-be clients that say no based on the price, that’s a sign that your price is too high or that you’re doing a poor job of communicating the real value of what you offer.
At that point, you’ve got a choice. You either find a way to stand out so you can charge a premium price, or you understand that you’re a commodity and need to price as such.
It’s simple economics. If you’re a me-too in a sea of people offering the exact same thing, very few people are going to pay top dollar as they know there’s an ample “supply” of people who can do the job as well as you can.
It’s only when you can stand out, own your authority, and tap into a real need that only you can fill that you’re able to command top-shelf prices for your services.
Again, your price tells a story, so you need to think about where you want to sit in the market. Ideally, if you want to charge prices at the high end of the spectrum, you need to find a way to position yourself as a “category of one” so there’s no question as to why that price is what it is.
GETTING YOUR PRICING JUST RIGHT
Finding the sweet spot for your pricing comes down to being willing to experiment and shift over time.
Each time we introduce a new service at Scoop Studios, we tend to have an intro price that we use to test things out and to get experience with it under our belt. Then, we strategically move the price up over time as we’re known more and more for that service. That strategy has enabled us to charge premium prices where they are warranted and to find the right price point for each offering.
As you consider your pricing, it really comes down to three core things:
- Need for what you have to offer.
- Perception of you and what you’re offering.
- The value of your service and the results you deliver.
The key to pricing your services comes down to having the confidence to be honest about each of these items and for you to work with your pricing in a way that gets you paid and helps you grow.